INTANGIBLE ASSETS AND GOODWILL (Notes)

6 Months Ended

Jun. 30, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL, INTANGIBLE ASSETS AND OTHER LONG-LIVED ASSETS

A substantial portion of the Company’s intangible assets and goodwill relates to the acquisitions of OpenTable and KAYAK.

Goodwill

The changes in the balance of goodwill for the six months ended June 30, 2020 consist of the following (in millions):


Balance, December 31, 2019 ⁽¹⁾	$	2,913

Impairment	(489)
Foreign currency translation adjustments	(12)
Balance, June 30, 2020 ⁽¹⁾	$	2,412

(1) The balance of goodwill as of June 30, 2020 and December 31, 2019 is stated net of cumulative impairment charges of $1.4 billion and $941 million, respectively.

The Company tests goodwill for impairment annually and whenever an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company tests goodwill at a reporting unit level. The Company’s annual goodwill impairments tests are performed as of September 30. Due to the significant and negative financial impact of the COVID-19 pandemic (see Note 1), the Company performed an interim period goodwill impairment test at March 31, 2020. Under the current goodwill impairment standard adopted in the first quarter of 2020, a goodwill impairment loss is measured at the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of goodwill (see Note 1). No additional impairment indicators were identified as of June 30, 2020.

As of March 31, 2020, the estimated fair value of each of the Company’s reporting units, except the OpenTable and KAYAK reporting unit, exceeded its respective carrying value. For the OpenTable and KAYAK reporting unit, the Company recognized a goodwill impairment charge of $489 million for the three months ended March 31, 2020, which is not tax-deductible, resulting in an adjusted carrying value of goodwill for OpenTable and KAYAK of $1.5 billion at March 31, 2020. The goodwill impairment was primarily driven by a significant reduction in the forecasted near-term cash flows of OpenTable and KAYAK as well as the significant decline in comparable companies' market values as a result of the COVID-19 pandemic.

The estimated fair value of OpenTable and KAYAK was determined using a combination of standard valuation techniques, including an income approach (discounted cash flows) and a market approach (applying the recent decline in enterprise values of comparable publicly-traded companies to the recently calculated fair value for OpenTable and KAYAK, as well as applying comparable company multiples).

The income approach estimates fair value utilizing long-term growth rates and discount rates applied to cash flow projections. In the cash flow projections, the Company assumes that OpenTable and KAYAK will experience a significant decline in near-term cash flows with a recovery to 2019 levels of financial performance occurring in 2023. The shape and timing of the recovery is a key assumption in the fair value calculation (both in the income and market approaches), however, it is highly uncertain whether the actual recovery will match the trajectory or magnitude of the Company's assumptions. If the timing of recovery to 2019 levels of financial performance were to occur in 2022 or 2024, the impact to the estimated fair value, at March 31, 2020, ranges from an increase of over $230 million to a decrease of over $410 million.

The estimation of fair value reflects numerous assumptions that are subject to various risks and uncertainties, including key assumptions regarding OpenTable and KAYAK’s expected growth rates and operating margin, expected length and severity of the impact from the COVID-19 pandemic and the shape and timing of the subsequent recovery, as well as other key assumptions with respect to matters outside of the Company's control, such as discount rates and market comparables. It requires significant judgments and estimates and actual results could be materially different than the judgments and estimates used to estimate fair value. Future events and changing market conditions may lead the Company to re-evaluate the assumptions reflected in the current forecast disclosed above, particularly the assumptions related to the length and severity of the COVID-19 pandemic and the shape and timing of the subsequent recovery, which may result in a need to recognize an additional goodwill impairment charge, which could have a material adverse effect on the Company's results of operations.

Intangible Assets and Other Long-lived Assets

The Company's intangible assets at June 30, 2020 and December 31, 2019 consist of the following (in millions):


	June 30, 2020										December 31, 2019
	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Amortization Period
Supply and distribution agreements	$	1,094	$	(498)	$	596	$	1,100	$	(472)	$	628	3 - 20 years

Technology	170		(135)		35		170		(129)		41		2 - 7 years

Internet domain names	39		(33)		6		40		(32)		8		5 - 20 years

Trade names	1,808		(580)		1,228		1,811		(534)		1,277		4 - 20 years

Other intangible assets	2		(2)		—		2		(2)		—		Up to 15 years
Total intangible assets	$	3,113	$	(1,248)	$	1,865	$	3,123	$	(1,169)	$	1,954

Intangible assets are amortized on a straight-line basis. Amortization expense was $42 million and $85 million for the three and six months ended June 30, 2020, respectively, and $44 million and $89 million for the three and six months ended June 30, 2019, respectively.

The Company reviews long-lived assets, including intangible assets and operating lease assets, whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The assessment of possible impairment is based upon the ability to recover the carrying value of the assets from the estimated undiscounted future net cash flows, before interest and taxes, of the related asset group. Due to the significant and negative financial impact of the COVID-19 pandemic (see Note 1), at March 31, 2020, the Company performed the recoverability test of its long-lived assets and concluded that there was no impairment. No additional impairment indicators were identified as of June 30, 2020.